The impact of the pandemic on business confidence in Europe. The new data from the Commission

Camilla Palla

On October 29, the European Commission published the economic sentiment and business confidence indicators. The Economic Sentiment Index (ESI), is a composite indicator produced by the Directorate General of the Commission for Economic and Financial Affairs (DG ECFIN) to monitor the growth of GDP at different levels – within the Member States, then the Eurozone and, finally, the European Union.

What is the ESI? It is based on the weighted average of the balances of the answers to selected questions addressed to businesses and consumers in five sectors – industry (40%), services (30%), consumer goods (20%), distribution (5%) and construction (5%). The balances are the result of the difference between the percentages of respondents giving positive and negative answers. The data is initially collected on a national basis and then aggregated and adjusted according to seasonality to assess the trend both in the Eurozone and in the European Union as a whole.

From the Eurostat surveys of this October an extremely delicate picture emerges. As far as the Eurozone and the EU are concerned, a situation of stagnation has been observed, reflecting the lack of confidence in the service sector and among consumers themselves, which is, however, counterbalanced by a recovery in industry, the retail trade and construction. Respectively, the index stands at 90.9 in the Eurozone and 90 in the EU, values which have stabilised after a record collapse last March following the introduction of the lockdown measures in Europe.

The trend of the index is not the same throughout the continent. In some countries, such as France and the Netherlands, the ESI fell by 4.5 and 2.2, respectively, a marked decrease. In Italy and Germany, on the other hand, the growth of 1.2 points for the former and 1.5 for the latter, bodes well for a considerable improvement in the months to come.

The industrial sector has recorded the highest number of consecutive increases, despite the downward correction of production expectations. After the sharp decline at the beginning of the pandemic, the entire sector now seems to have again balanced itself out, both internally and in the evaluation of export orders. However, the result achieved still places it below the average of previous years.

Undoubtedly, the growing concerns about the expected general economic situation and financial situation have had a significant impact on consumers, generating a more cautious behaviour and a consequent reduction in consumption.

Moreover, to be taken into account, although not included in the ESI, is the decline in confidence in financial services (-3.4). Finally, a clear decrease also emerges in the indicators for employment expectations, which dropped by 1.8 points in the Eurozone and 1.2 points in the EU as a whole.

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